1.-8.

44

[STATEMENT, F. ALLEN.

hundred and sixty companies more than sixty were forced into absolute failure, whilst nearly as many more were compelled to adopt measures for the immediate restoration of their capital or assets. With regard to the operation of Government fire insurance in the Kingdom, of Saxony : By law, all buildings which are not classed as extra-hazardous must be insured with the Government. But the flames keep ahead of the rates, and the Government institution had some years ago a deficit of upwards of £150,000. The State office is in reality a public charitable institution under the regulations of which the large and well-managed cities, adequately supplied with improved fire departments, cover the losses of the ill-constructed small towns and villages. The General Mutual Insurance Company of Sweden had a large conflagration in 1888 in the Towns of Sundsvall and Dmea ; by the fire at Sundsvall they sustained a loss of £350.000, and by that of Umea, shortly afterwards, £81,500. The available funds to meet these losses of £431,500 was £80,000. The large amount required to pay the balance had to be borrowed at high rates of interest payable over a series of years. The inhabitants of those towns are to this day staggering under the burden. State or municipal insurance is practised to some extent in Switzerland. Possibly the most perfect instance of the working of State fire insurance prevails in the Canton of Zurich ; there buildings only are insured provided they are of a non-hazardous character and not distant from towns or villages : the exceptions have to remain uninsured. The Government raise the necessary funds for meeting losses by a rateable tax on the owners of property ; the system is one of mutual insurance under the direction of Cantonal authorities. Very stringent laws are in force regulating the construction of buildings. The actual results of the system do not, however, indicate any special measure of success. At the same time it must not be overlooked that in other districts under this system the proportion of loss to the total sum insured has been about six times the average premiums charged by insurance companies in adjoining countries, where practically similar conditions of trade, &c, prevailed. Expenses. It is contended that Government would be able to conduct the State Fire Insurance Department at a much less cost than that found necessary by companies, but the onus certainly rests on those making this statement of proving it by something more tangible than mere assertion ; the expense-ratio of the New Zealand Government Life Department does not bear out the contention of economy. Life-insurance business cannot be compared in any form with that of fire insurance. The one is worked on clearly defined principles obtained from statistics compiled especially for the purpose ; the other (fire) has no settled lines, no statistics worth any consideration to help it. All is uncertain, and it is only by having widespread fields that an average can be obtained. On the score of economy, the experience of all civilised communities proves that business enterprises undertaken by Government are eventually more costly in their administration, and less satisfactory in their results, than when left to the watchful supervision and close attention of individual or corporate direction. It will be found a world-wide principle that where there are large companies with adequate resourses for the nature of the business, the best and therefore, viewed as a whole, the cheapest form of insurance will infallibly be in vogue. The idea that the expenses would be lower were the whole business concentrated under one management seems plausible enough. We have, however, of late years seen amalgamations of offices carried out on a large scale without effecting any diminution in the expense-ratio. The cost of supervision approximates closely to a fixed proportion whether the business be large or small. Profits of Fire-insurance Companies. It is generally taken for granted, without sufficient or, in fact, any given evidence, that the gains of fire-underwriters are so large that rates might be considerably reduced and still leave a margin for profit. It is a noticeable fact that whenever insurance matters are mentioned by non-insurance men the item "expenses" (between 30 and 35 per cent, of net premiums) and the sum required to reinsure unexpired risks are invariably ignored. Eesults of fire business of twenty-five companies established in New Zealand, for five years 1897 to 1901 :— Per Cent. Loss percentage to premium ... ... ... ... ... ... 68-8 Expenses (the average expenditure of English companies is about 33-35 per cent., but say) ... ... ... ... ... ... ... 30-0 98-8 Leaving a nominal profit for the five years of ... ... ... ... 1-2 To reinsure current risks on the 31st December, 1901, a sum of £151,194 would be required, so that the loss is a very serious one. During the twenty-three years to the end of 1901, twenty English, foreign, and Australian companies, many of them powerful ones, withdrew from New Zealand, five New Zealand companies were either liquidated or sold, and ten Australian companies were taken over by other institutions or liquidated, and £65,000 was written off capital (as lost) of other local companies. Of the native Australasian companies, those of New Zealand had the highest loss-ratio. No company should pay a dividend until it has provided this 33-J- per cent., because had it to close its business the company would have to reinsure its current risks. It is not only that premiums on unexpired risks are unearned, but it is the large contingent liability of loss that attaches to each policy current. From the foregoing it will be observed that dividends which have been paid by companies in New Zealand during the last five years must have been paid principally out of interest on invest-